Opinion
Case No. 03-52449, Adv. No. 04-5465.
September 1, 2004
MEMORANDUM OPINION
Homecomings Financial Network, Inc. ("Homecomings") is before the court on the Motion to Set Aside Default Judgment, and Motion for an Extension of Time that it filed in this adversary proceeding on June 11, 2004. Having considered the motion and the supplement thereto and the arguments of counsel, the court has determined that the motion must be overruled.
On April 26, 2004 Lucinda Masterton (the "Trustee"), as trustee of the estate of Antony Allen King and Kathy Lynn Ryker-King (the "Debtors"), filed the complaint initiating this proceeding, which sought to avoid the mortgage of Homecomings on certain real property of the Debtors on account of an allegedly defective acknowledgment of the Debtors' signatures. A summons was issued on April 27, 2004, and process was served on Homecomings on May 4, 2004 by mailing the summons and a copy of the complaint to its registered agent for service of process. No answer was timely filed or served so, on May 28, 2004, the Trustee filed a motion for a default judgment, serving a copy of the motion on the registered agent. There was no response to the motion, and the court granted the motion on June 1, 2004.
Although the record is unclear, it appears that the mortgage was a second mortgage, granted in favor of Empire Funding Corp., and that Homecomings is the current assignee thereof.
As indicated above, the motion presently before the court was filed on June 11, 2004. The court conducted hearings on the motion on July 15 and August 26, 2004. Homecomings supplemented its motion on August 3, 2004, setting forth argument in support of its contention that it has a meritorious defense.
Homecomings seeks relief from the default judgment under Rule 59 of the Federal Rules of Civil Procedure, made applicable in bankruptcy cases by Rule 9023 of the Federal Rules of Bankruptcy Procedure, on the grounds that "the Judgment is based upon errors of law and fact" and that relief from the judgment is "necessary to prevent injustice." Regarding the former ground, Homecomings contends that it has a meritorious defense to the Trustee's claim. However, the judgment was not based on the merits of the Trustee's position but, rather, on the failure by Homecomings timely to respond to the complaint. The court's findings and conclusions in this regard are not clearly erroneous. See, e.g., Javetz v. Bd. of Control, Grand Valley State Univ., 903 F. Supp. 1181, 1190-91 (W.D. Mich. 1995).
Relief from default judgments is normally sought under Rule 60-(b)(1), rather than 59(e), of the Federal Rules of Civil Procedure. Accordingly, it is appropriate to review the considerations taken into account in connection with Rule 60(b)(1) motions for relief from default judgments in determining whether vacating the judgment in this case is necessary to prevent manifest injustice, see In re Jones, 111 B.R. 674, 679-80 (Bankr. E.D. Tenn. 1990); In re Dinh, 90 B.R. 743, 745-46 (Bankr. E.D. Pa. 1988), which is a ground for relief under Rule 59(e), e.g., Javetz, 903 F. Supp. at 1181-94.
Indeed, at least one court has held that one may not employ Rule 59(e) to try to obtain relief from a default judgment, because that would be "seeking to avoid the more stringent standards of 60(b), which set forth specific conditions under which a court may set aside a default judgment." Plogger v. IMC Mortgage Co. (In re Plogger), 240 B.R. 243, 244-45 (Bankr. W.D. Va. 1999) (treating Rule 59(e) motion as Rule 60(b) motion). This court is reluctant to adopt this holding due to the statement by the Sixth Circuit to the effect that a Rule 59(e) motion may properly ask the court to vacate or even reverse its prior holding. Smith v. Hudson, 600 F.2d 60, 62-63 (6th Cir. 1979).
Under Rule 60(b), the burden of proof is on the movant: "A party seeking relief from judgment under Rule 60(b) must show that its case comes within the provisions of the Rule." Lewis v. Alexander, 987 F.2d 392, 396 (6th Cir. 1993) (citing Miller v. Owsianowski (In re Salem Mortgage Co.), 791 F.2d 456, 459 (6th Cir. 1986)). Whether neglect is "excusable" depends on the equities of the case, "taking account of all relevant circumstances surrounding the party's omission," including "the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith." Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993). In the Sixth Circuit, the issues that must be addressed in determining whether to grant relief from an order or judgment under Rule 60(b) are "(1) Whether culpable conduct of the defendant led to the default, (2) Whether the defendant has a meritorious defense, and (3) Whether the plaintiff will be prejudiced." Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992) (citing United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)). These are not factors to be weighed: "It is only when the [movant] can carry this burden [of demonstrating that the order was the result of mistake, inadvertence, surprise, or excusable neglect] that he will be permitted to demonstrate that he can also satisfy the other two factors: the existence of a meritorious defense and the absence of a substantial prejudice to the plaintiff should relief be granted." Id. Homecomings has failed to satisfy this threshold requirement, so the court need not evaluate whether Homecomings had a meritorious defense or whether granting the motion would prejudice the Trustee.
Neither the motion nor the supplement thereto explains why Homecomings failed to respond to the Trustee's complaint, and it has offered no affidavits or other evidence in that regard. At the initial hearing on the motion, counsel for Homecomings explained the reason for the failure to respond as follows: "The complaint was properly served, but by the time it got to the person within the corporation that should have had it, it was too late." In this regard, this case is indistinguishable from Vaughan v. Mortgage Lenders Network (In re Bradbury), No. 03-8070 (B.A.P. 6th Cir. Apr. 14, 2004). There, a trustee filed a complaint against Mortgage Lenders Network seeking to avoid its mortgage on account of a technical defect under state law. Mortgage Lenders failed to respond, and a default judgment was entered. Mortgage Lenders later sought relief from the judgment under Rule 60(b)(1), contending that it did not respond to the complaint because, "while process was received by its registered agent, the complaint did not come to the attention of appropriate individuals within Mortgage Lenders' organization for some unknown reason." Id., slip op. at 9. The Bankruptcy Appellate Panel affirmed the bankruptcy court's denial of the motion for relief from the judgment:
The maintenance of reasonable procedures to assure that answers to complaints are timely filed may demonstrate a lack of culpability even in instances in which the procedures failed in some unknown way. Isolated human error, despite well established minimum procedural safeguards, may be excusable under the facts of the case. However, in this case, Mortgage Lenders introduced no evidence of the system, if any, it had established for the purpose of making sure that legal process "reache[s] the persons responsible for responding to legal actions for Mortgage Lenders Network." If it had done so, a single unexplained failure of the system might have demonstrated excusable neglect. Having introduced no such evidence, Mortgage Lenders did not show a lack of culpability for its default. Thus, the bankruptcy court did not abuse its discretion in finding that Mortgage Lenders failed to carry its burden of proving that its neglect was excusable. . . .
Id. (citing See Owens-Ill., Inc. v. T N Ltd., 191 F.R.D. 522, 528 (E.D. Tex. 2000)). Likewise, here, Homecomings submitted no evidence that it had a system in place for making sure that process reaches "the person within the corporation that should have had it."
Accordingly, Homecomings would not be entitled to relief under Rule 60(b)(1) of the Federal Rules of Civil Procedure. It follows that Homecomings has not shown that relief from the judgment is necessary to prevent manifest injustice. For the foregoing reasons and because the interests of finality and the conservation of scare resources require that such extraordinary relief be granted sparingly, e.g., Parrish v. Sollecito, 253 F. Supp. 2d 713, 715 (S.D.N.Y. 2003); Pa. Ins. Guar. Ass'n v. Trabosh, 812 F. Supp. 522, 524 (E.D. Pa. 1992), the court will exercise its discretion to deny relief from the default judgment under Rules 59(e) and 9023. See, e.g., Patterson Dental Supply, Inc. v. Hochhauser (In re Hochhauser), No. 03-8024, slip op. at 3 (B.A.P. 6th Cir. Dec. 30, 2003) (citations omitted). Because one requesting an extension of a deadline that has already expired must show excusable neglect, Fed.R.Bankr.P. 9006(b)(1), the court will also deny the request by Homecomings for an extension of the deadline for responding to the Trustee's complaint.
The court will enter a separate order overruling the Motion to Set Aside Default Judgment, and Motion for an Extension of Time filed by Homecomings.